From Menu Foods Not for Release Over US Newswire Services

Menu Foods financial results for the first quarter of 2010; the press release announcement states “Not for release over US newswire services”. The follow is excerpts from the financial statement regarding the 2007 recall and pending FDA criminal investigation.

“Product Recall”
“The estimated product recall costs are based on the best information currently available to the management of the Fund. The ultimate determination of these costs is dependent on the amount of product actually returned and certain other factors.”

“Lawsuits have been initiated against the Fund and certain of its subsidiaries in the United States and in Canada relating to the recall, some of which remain outstanding in the United States as they are not resolved by the Settlement Agreement. Furthermore, the U.S. Food and Drug Administration is conducting an investigation into the situation. The United States Attorney for the Western District of Missouri, based in Kansas City, has informed Menu that it is the target of a criminal investigation for possible violations of the U.S. federal Food, Drug and Cosmetic Act with respect to the recalls in 2007. It is possible that additional actions or investigations may arise in the future. The Fund expects to expend significant amounts and devote considerable management time with regard to these matters. The Fund cannot predict the amount of such expenses, the resolution of any claims or investigations, the extent to which these items will be paid by the Fund’s insurers, or whether the Fund will have sufficient resources to pay any or all of these items.”

“Outlook”
“Product Recall and Litigation”
“Between March 16, 2007 and May 22, 2007 the Fund instituted a series of recalls of certain products, manufactured between November 8, 2006 and March 6, 2007. In addition, the Fund instituted a withdrawal of all varieties of recalled product, regardless of its date of manufacture, in order to reduce the risk that any recalled product might remain on the retailers’ shelves.
Throughout this period of time, the Fund worked closely with regulatory authorities and its customers to learn as much as it could about the cause for the recall. It was ultimately determined that the cause was wheat gluten adulterated with melamine and related compounds. This ingredient was imported from China by a broker in the United States. Subsequent to Menu’s recall a number of other significant companies in the pet food industry, who had also purchased wheat gluten from this same broker, or purchased other vegetable proteins from other brokers who imported them from China, followed suit and instituted recalls of their own. As it transpired, the Fund, the pet food industry, our customers and consumers were all victims of a fraud of monumental proportions.”

“The Fund estimated that, based on currently available information, the direct costs associated with this recall would approximate $55 million. This amount was expensed and reflected in the results for the year ended December 31, 2007.”

“Lawsuits have been initiated against the Fund and certain of its subsidiaries in the United States and in Canada, which seek to recover damages on behalf of the named plaintiffs and purported class of pet owners. On November 19, 2008 and on November 27, 2008, the U.S. Court and various Canadian courts, respectively, gave final approval of the comprehensive Settlement Agreement in the pet food multi-district litigation. Two appeals of the order of the U.S. Court approving the Settlement Agreement have been filed. It is uncertain how long these appeals will take to resolve. No appeals have been filed in Canada, and the time for filing an appeal has passed. However, the Settlement Agreement requires the appeals in the United States to be finally determined prior to any payments to claimants, and therefore settlement payments to pet owners in both the United States and Canada will be delayed until the appeals have been resolved. The Settlement Agreement would resolve the class action lawsuits filed in the U.S. and Canadian courts and is binding on all members of the settlement class, except for the 114 individuals who have validly opted out of the settlement and who thereby retain their claims against one or more of the defendants, including Menu. The Fund’s estimate for the cost of settling the claims which these individuals may bring against Menu is reflected in the Recall Costs.”

“The Settlement Agreement created a settlement fund of US$24 million that will allow a potential recovery of up to 100% of all economic damages incurred by pet owners, subject to certain limitations. The settlement fund, administered by a neutral claims administrator, will be available to persons in the United States and Canada who purchased or obtained, or whose pets used or consumed, recalled pet food and who have filed claims forms in accordance with the procedures approved by the U.S. and Canadian courts. Pursuant to the Settlement Agreement, the settlement fund is funded by the defendants, including the Fund and its product liability insurer. The Fund’s corporate contribution to the settlement, which has been paid, is within its previously recorded recall provision of $55 million.”

“The U.S. Food and Drug Administration is conducting an investigation into the situation. The United States Attorney for the Western District of Missouri, based in Kansas City, has informed Menu that it is the target of a criminal investigation for possible violations of the U.S. Federal Food, Drug and Cosmetic Act.”

“The Fund may be required to expend significant amounts and to devote considerable management time to these matters. It is not possible to predict the amount of such expenses, the resolution of such claims or investigations, or the extent to which these items will be paid by insurance.”

“Risks and Uncertainties”
“Certain of the risks and uncertainties facing the Fund result from the product recall, including its ultimate final cost, the extent of any fines or penalties that may be assessed, the cost of any resulting litigation or investigations, including the extent to which these costs will be covered by insurance, and the impacts of the foregoing on liquidity.”

My sincere encouragement is behind the United States Attorney for the Western District of Missouri and the FDA on this matter. It is certain that many pet owners will be closely watching the outcome of this “criminal investigation”. Will it be a mere $25,000 fine and probation just like ChemNutra? If so, they shouldn’t even bother; why spend taxpayer money to further insult pet owners. However, if finally, someone of legal authority could wake up with a conscience…then just maybe legal penalties and fines will be just. Nothing will ever bring back the thousands (if not hundreds of thousands) of pets or restore the health of those that still suffer – however justice would be nice.

I have contacted the US Attorney’s office for the Western District of Missouri for information; when/if I learn anything new it will be posted promptly.